It is time for an economics lesson that most actual professors of economics will never deliver, because the contradiction in what I am about to explain is often not visible to those immersed within the orthodoxy of their field.

We often hear of 'recessions' as small events and 'depressions' as major events, however the two are defined in a very apples-to-oranges way, that is about to become exposed as we are entering a period that does not fit within either.

A recession only counts the period of the decline, but not the period that it takes for the economy to climb back to the previous high water mark.

A depression counts not only the decline but also the period it takes to return to the high water mark.

Thus, recessions are defined by a definition that is incomplete and deceptive for not accounting for whether the recovery is rapid or slow, while depressions have a more accurate and complete definition. The governments of the US and other nations have gotten away with this since almost every recovery out of a recession since 1948 was rapid enough that this flaw was not noticed. But no longer.

The last recession was deemed by the NBER to have ended in June 2009. However, note this chart from Calculated risk (click to enlarge), which indicates that payroll employment will take several more years to reach its high water mark from before the recession, far longer than any prior recession. That we may be heading into another recession now extends this process even longer.

Now, about depressions, there are some myths that have to be corrected. Some depressions are shallow but very long (like the 'Long Depression' from 1873-96), while others are very deep but shorter. Naturally, when the term 'depression' arises, most people think of the most recent one, which was the Great Depression from 1929-39, which a few people still alive today are old enough to remember. However, a closer look at the Great Depression reveals that the sharp downturn that started in 1929 ended in 1933, and that from 1934 onwards, there was rapid improvement. For all the 'Grapes of Wrath' imagery, anyone who managed to survive until 1934 saw continuous and persistent improvement in economic conditions from the deep bottom.

Now, if we measure this period by the standards that recessions are measured by, there was a steep recession from 1929-33, followed by a recovery, and a much smaller recession in 1937-38. The two recessions would seem unrelated, and the entire 1929-39 period would not be combined into one event. Clearly, the failure to recapture the 1929 high water mark is the determinant of the depression classification lasting until 1939.

Will the present period from 2008 to ~2017(?) be classified as a shallow depression? Perhaps, but this will not be declared such until several years after it is over. Rather, the proper way to assess this economic episode is to measure its deviation from the long-term exponential trendline, and not for the US, but rather in relation to World GDP.

This leads to the longer-term assessment, which is that perhaps we are in a midst of seeing Asia correct to a historically normal percentage of world GDP. As this chart from The Economist shows (click to enlarge), at no time before 1820 was India + China less than 45% of world GDP on a PPP basis, and this chart ends in 2008, before most of the aforementioned India-China surge that I discussed earlier. While India began to decline in 1700, China was at a very high point as recently as 1820. Perhaps the rapid gains that India and China are seeing now is merely a reversion back to historical norms established over 5000 years, where these two nations were always at least 45% of world GDP. If that is the case, the 1820-2020 period was an atypical 200-year golden era for the 'West'. Indeed, the major European powers have already shrunk below any relative size they have been since 1500. The US, of course, is a nation that did not exist for most of the period this chart covers, and thus may not shrink away the way that Europe has, and despite a classification of being part of the 'West' (a grouping Japan is also often shoehorned into), may align closer to Asia due to sheer gravitional pull.

Since economic growth is exponential and accelerating, we now live in an age when it is possible to have such a large deviation from the trendline, while still experiencing minimal absolute growth. This may not be called a 'depression' according to the way this was defined in the 20th century, but for the US it is a departure of a similar magnitude as the 1930s.